World Business

Euro zone backs Greek aid, govts try to calm markets

(Agencies)
Updated: 2010-05-08 16:00

BRUSSELS - Euro zone leaders approved emergency loans for Greece on Friday and governments around the world tried to calm financial markets hit by fears that Athens' debt crisis could cause havoc in other European economies.

"It's done," a European Union source said, confirming the leaders of the 16-country common currency group had given their political stamp of approval to an EU-IMF deal to release 110 billion euros ($147 billion) to Greece over three years.

But EU sources said the leaders were divided on how to prevent such crises spreading to other heavily indebted countries and that all 27 EU finance ministers would hold further discussions in Brussels on Sunday.

"It is a time of emergency," an Italian spokesman quoted Italian Prime Minister Silvio Berlusconi as saying during the meeting in the Belgian capital.

Fears that the emergency loans might not be enough to prevent a Greek default and avert a broader economic crisis kept world stocks near a three-month low, despite strong US jobs data.

Group of Seven finance ministers discussed the situation in a conference call after US Federal Reserve officials expressed concern, and agreed to keep a close eye on the markets.

US President Barack Obama told German Chancellor Angela Merkel by telephone that he backed efforts to rescue Greece and said regulatory agencies were investigating an "unusual" sudden drop on US markets on Thursday.

"We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community," Obama said.

Tighter regulation

Obama and Merkel spoke before the Brussels summit, at which the euro zone leaders formally approved the loan package which finance ministers backed on May 1

But despite broad agreement on the need to tighten budget discipline, the euro zone leaders found agreement elusive on a crisis mechanism to protect other countries.

"This is a systemic problem. It's a question of the stability of the euro," one EU official quoted ECB President Jean-Claude Trichet as saying during the meeting.

Merkel, who presides over Europe's largest economy and has often been at odds with other EU leaders because of German public opposition to helping Greece, said she would not rule out reform of Union treaties to tighten budget rules.

Other EU leaders have resisted such changes and the 27-country bloc has struggled for unity during the crisis, leading to accusations that its hesitancy has increased the uncertainty on the jittery financial markets.

Hours before the meeting, the German parliament approved its share of the Greek rescue, the largest contribution by a euro zone country. The Dutch parliament also approved its part of the deal and Italy's cabinet has given initial approval.

But five German academics filed a legal challenge to the package, reflecting widespread German public opposition to the measure.

Previous Page 1 2 Next Page